cards

Question 1

Types of short term investments (MTC)

Answer 1

• Money Market: Overnight to year low risk investment
• Term Deposit: money invested for a set period of time at a fixed interest rate. Longer the term invested, higher the interest offered.
• Cash Management Trusts: Investors pool their money with other investors in a trust fund investment requiring a high minimum deposit. No set term, funds are easily accessed.

Question 2

Types of LTI’s (STTUD)

Answer 2

• Shares: Part ownership of a company. Income comes from dividends (share of company profit) and capital gains (selling shares higher than purchase price). Volatile due to economic conditions and thus high risk.
• Trusts: Investors combine on ASX to buy shares. Returns can be higher than an individuals share investment. Funds easily accessible.
• Term Deposit: Term deposit but beyond one year long. Reliable interest income.
• Unsecured Notes (bonds): Work the same way as debentures but without security over assets. Higher returns than debentures but high risk as unsecured.
• Debentures: Secured loan from the public to a public company that has issued debenture through a prospectus, with a fixed interest rate and principal repayment at a later date. Low risk, low interest as is secured by company assets. As a secured creditor a debenture holder has payment priority over unsecured creditors and shareholders if company is liquidated.

Question 3

Role of financial institutions

Answer 3

Accept deposits, lend money, give advice.

Question 4

Management accounting

Answer 4

Providing information to internal management to support day to day management decisions and facilitate strategic direction.

Question 5

Financial accounting

Answer 5

Preparing and presenting GPFS to external users in order to help them make sound economic decisions about the entity’s financial performance, position and cashflow.

Question 6

Internal reporting

Answer 6

Type of accounting: Management accounting

Users: Internal users
Management only- managers, CEO, sole traders, partners

Reports: Special purpose internal reports eg financial budgets, sales forecast, market analysis
Flexible format, info is tailored to management needs
Financial and non-financial
Estimates, future orientated
Regular, timely, on demand as requested by management

Financial Statement Types: Financial position
Financial performance
Cash flows

Regulation: No regulation
Aren’t required to be audited as they don’t have to comply with accounting standards

Question 7

External Reporting

Answer 7

Type of accounting: Financial accounting

Users: External users-
Existing and potential investors
Lenders and creditors
Customers, general employees
Regulatory authorities (ATO, ASX)

Reports: A written document called an annual information statement (FP, FP, Equity, cash flow, CSR report, auditors report) must be issued to shareholders.
Specific, consistent format as per accounting standards
Historical and verifiable data
ASX, ATO and accounting standards require reports at regular intervals.

Financial statement types: 4 general purpose financial statements

Regulation: Highly regulated
Must comply with accounting standards, taxation and corporations law
Must be audited, submitted to ASIC
Must meet ASX disclosure rules if public

Question 8

Internal control

Answer 8

refers to the policies and procedures a business uses to safeguard assets, increase accountability, increase efficiency and ensure there is compliance with laws, accounting standards and regulations.

Question 9

Internal audit

Answer 9

the review of the business operations and internal control procedures to ensure they are being adhered to and working efficiently and effectively.
Done by an internal employee.

Question 10

Purposes of internal audit

Answer 10

Review of business policies and procedures: Management put in place policies for employees to follow to minimise risk and ensure efficiency and accuracy in procedures. Need to check external regulation and staff compliance. Failures can affect customer service and employee satisfaction.

Detect and correct errors/ deficiencies: To find errors in a business’s internal system and controls, an internal auditor or any member of staff who is not directly related to the areas being audited is necessary. Ensures done in an objective manner. Then report back to management any errors that need correcting.

Question 11

Role of the accountant

Answer 11

Assist the owners, directors and managers with the information needed to make informed decisions and maximise profits.

Question 12

Function of the accountant

Answer 12

Design a financial system, supervise and record financial transactions, collect information, produce reports, ensure compliance with laws, provide advice, review and suggest strategies for control of assets and financial systems.

Question 13

financial principles of asset management

Answer 13

table in document

Question 14

Insolvency definition

Answer 14

A business is solvent if they can pay all their debts as they become due and payable. A business that is not solvent is insolvent. Regulated by Corporations Act.

Question 15

Options for insolvent companies

Answer 15

• voluntary administration
• liquidation
• recievership

Question 16

Voluntary administration

Answer 16

When the company directors or a secured creditor appoints an external administrator who will take over company operations and find the best solution for creditors. The voluntary administrator will investigate company affairs and then recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned back to the directors control. A deed of company arrangement is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with.

Question 17

Liquidation

Answer 17

Liquidation can occur in two ways:
* Involuntary- Creditor applying to court.
* Voluntary- Shareholders vote to be wound up and appoint a liquidator or when creditors vote for liquidation following voluntary administration.

Liquidator takes control of the company so its affairs can be wound up and the company deregistered. Involves ceasing operations, selling assets, and distributing the proceeds among its creditors and shareholders according to the Corporations Act.

Order of creditor repayment is as follows:
1. Liquidator fees
2. Secured creditors eg debenture holders
3. Employee wages, superannuation, leave
4. Unsecured creditors
5. Shareholders

Question 18

Receivership

Answer 18

A receiver is appointed by a secured creditor to take control of and sell secured assets. Receiver then pays out the money collected and reports to ASIC any possible offences they come across. Receivership ends when they have sold enough secured assets to be discharged by the secured creditor. Full control of the company and any remaining assets then goes back to the directors.

Question 19

Corporate Social Responsibility

Answer 19

when a business implements processes for protection of environment and the good of society. Concerned not just about profit but the triple bottom line. For example recycling, reducing pollution, employee safety, donating to charity.

Question 20

Costs of CSR

Answer 20

• Training staff
• Accommodating for special needs
• Cost of donations
• Purchasing more expensive green products

Question 21

Benefits of CSR

Answer 21

• Competitive edge
• Employee loyalty
• Reputation
• Avoiding fines from gvt
• Possible cost saving like less water use

Question 22

Capital investment

Answer 22

involves the purchase of NCA or a significant outlay of cash for a project that is expected to produce a cash inflow over a period of time over one year. Eg plant, equipment, large advertising campaigns.

Question 23

Importance of capital investment

Answer 23

necessary for business growth by improving competitiveness and market share, increasing sales revenue, improving efficiency or operating capacity.

Question 24

time value of money

Answer 24

refers to the fact that a dollar today is worth more than a dollar promised at some future time.
Inflation and compound interest

Question 25

Nature of capital investment

Answer 25

1. Large sum of money 2. Long period of time 3. Can not be easily reversed 4. Substantial risk involved

Question 26

Qualitative factors affecting capital investment decisions

Answer 26

Qualitative aspects: Descriptive and conceptual factors. Major qualitative factors are Consumer preferences: Respond accordingly to changing preferences with suitable capital investment. Investment that meets consumer preferences will lead to a higher return. However if they change during a projects life it may fail. Competition: A business must keep up with or get ahead of its competitors and this may require additional investment. If a competitor is launching a new product or better and more efficient technologies, decisions must be made about a response. Could lose market share. Government regulations: Capital investment may be required to comply with local, state and national laws and government regulations such as workplace standards or energy use. If regulations change management will have to invest capital to modify or replace existing infrastructure. Government may also offer subsidies and tax rebates. For example solar panel subsidies. Regulation changes must be taken into account when predicting future income and costs of investment.

Question 27

Why is NPV better measurement than payback period

Answer 27

NPV is the better measurement as it takes into account time value of money, is more accurate and payback period doesn’t measure inflows past the payback period.

Question 28

Cost accounting

Answer 28

involves the calculation, recording and evaluation of the costs of operating a business and producing goods.

Question 29

Cost elements

Answer 29

Materials: Direct materials are the materials and parts directly used to manufacture a product or provide a service for example wood or steel. There are usually some indirect materials such as fuel or oil for machinery that relate to manufacturing in general but not directly. Labour: Direct labour includes wages and other payroll costs of the employees that directly work to manufacture the product Manufacturing (factory) overheads: All the costs indirectly related to manufacturing product or provision of service. For example rent, insurance. Indirect labour and material costs are included.

Question 30

Cost behaviours

Answer 30

Fixed costs: Fixed costs do not change as business activity changes. Eg rent, depreciation Variable costs: Those that change as level of business activity changes. Eg materials, direct labour Mixed costs: A combination of fixed and variable. Eg telephone, electricity

Question 31

Relationship to cost objects

Answer 31

Direct costs: Able to be traced to a manufactured product or service with a high degree of accuracy. Indirect costs (overheads): Manufacturing costs that are not easily traced to a product or service. They are too insignificant to make it worth tracing to the finished product.

Question 32

Product costs

Answer 32

Relate to the manufacture of a product or provision of a service. Thus all direct and indirect costs can be regarded as product costs. DM+DL+OH.

Question 33

Period costs

Answer 33

Relate to an accounting period and not to the manufacture of products. They are the general operating costs of the business; finance, selling and general and admin.

Question 34

Time orientation of costs

Answer 34

Past (sunk) costs: Costs that have already occurred, cant be reversed and hence have no impact on current decisions. Future costs: Relevant costs as they are anticipated relevant to current decisions about a specific job.

Question 35

Nature of master budget

Answer 35

- Amalgamation of all budgets - Three main components: Operating budgets, Capital expenditure budget, Finance budgets - Usually over a 12 month period.

Question 36

Importance of master budget

Answer 36

- Strategic direction for achieving business goals by use of business resources - Coordinating departments work together to achieve goals - Motivate staff through goals

Question 37

Operating budget

Answer 37

- All information about income and expenses - Sales budget is completed first as all other budgets in the operating budget must meet these goals. - Manufacturing businesses will make a production budget (DM, DL, OH) whilst trading businesses will have a purchases budget.

Question 38

Capital expenditure budget

Answer 38

- Amount and timing of noncurrent asset purchases - Is risky for business so must be planned carefully - Done before cash budget and budgeted balance sheet but after operating budget

Question 39

Financial budget

Answer 39

- How business will be financed - Shows impact of plans on assets, liabilities and equity. - Includes cash budget and budgeted balance sheet

Question 40

Purpose of cash budget

Answer 40

* Cashflow and liquidity management * Ensures cash is available to meet future needs * Reveals cash shortages or surpluses to fix/utilise * Comparison with actual cash performance

Question 41

Function of a cash budget

Answer 41

* Estimates all cash received and paid * Short-term basis – monthly, quarterly * Control over cash as liquidity is crucial for business survival

Question 42

Importance of having cash available

Answer 42

* Debts can be paid, business survives * Credit rating * Day to day expenses paid so business can actually operate * Invested to create more income

Question 43

Purpose of budgeted income statement

Answer 43

- Problems such as low profit or high expenses revealed so action can be done to prevent - Comparison with actual outcome - If expected profit is realistic

Question 44

Function of budgeted income statement

Answer 44

- Calculates budgeted profit from estimated income and expenses - Accrual basis - BDA required - Usually prepared for a longer period than cash budget eg quarter, 6 months, year

Question 45

Purpose of performance reports

Answer 45

* Identify variances so management can better control in future * Controlling function of management * Performance management

Question 46

Function of performance reports

Answer 46

* Alter future budget expectations * Unfavourable/ favourable variances investigated * F variations can be used to reward employees

Question 47

Performance management

Answer 47

reviewing performance reports and determining where future improvements can be made.

Question 48

Why do businesses plan

Answer 48

Reduce risks and costs

Question 49

Business planning stages

Answer 49

1. Development of goals 2. Make objectives to ensure goals are met. 3. Strategies to meet these objectives:  Cost leadership refers to having low prices through being efficient. The lowest sale price is achieved through low COS and reducing wastage and inefficiencies. Eg. Bunnings  Differentiation focuses on having a distinct g or s from competing products. Allows a higher price to be charged. E.g David Jones 4. Operational decisions to put strategies into effect.

Question 50

How is public company different to large proprietary?

Answer 50

Owners 1+ Directors Min of 3 and 1 secretary. 2 of directors must reside in Aus Transfer of ownership Unrestricted transfer of shares via listing on ASX. Can be offered to public Annual General Meeting Once a year. Shareholders need 28 days notice

Question 51

How is large proprietary company different to public?

Answer 51

Owners: 1-50 shareholders Directors: Min of 1. No secretary needed Ownership transfer: Transfer of shares can be restricted on constitution. Can’t offer shares or debentures to public No AGM needed

Question 52

Accounting standards

Answer 52

legal guidelines that must be followed by accountants of reporting entities in the preparation and presentation of financial information. Ensures GPFS are consistent and provide a sound representation of FP and FP

Question 53

3 purposes of accounting standards

Answer 53

- Protecting external users - Assist directors in meeting reporting obligations to shareholders - Confidence to investors in Aus capital markets

Question 54

Purpose of the Conceptual Framework

Answer 54

describe the objectives of, and concepts for, GPFR. This assists reporting consistency

Question 55

Key elements of the Conceptual Framework

Answer 55

- nature of reporting entity - objectives of GPFR - fr vcut - component recognition criteria

Question 56

What is a reporting entity

Answer 56

an entity that is required to or chooses to prepare financial statements. A reporting entity is required to prepare financial statements if it has public accountability meaning it has external/primary users (investors, lenders, creditors) reliant on their reports to make decisions. Public companies are reporting entities, but may include proprietary companies as well if shareholders aren’t part of management

Question 57

Objective of GPFR

Answer 57

provide financial information about the reporting entity that is useful to external users in evaluating returns and deciding to give resources or not

Question 58

Fundamental and enhancing characteristics of financial information to make info useful to primary users

Answer 58

FUNDAMENTAL - Relevance: Capable of making a difference in business decisions, meaning it is material and its omission or misstatement will influence decision making. Predictive or confirmatory value (future/past events). - Faithful representation: Information must be complete (all info necessary), neutral (no bias) and free from error. ENHANCING - Verifiability: Different people independently agree the economic events info is correct. Direct means verifying through direct observation like counting money and indirect means verifying through a recalculation eg depreciation. - Comparability: Information should allow users to see similarities and differences over time. Done through consistency in policies and methods over time. - Understandability: Users with reasonable knowledge can comprehend and interpret the information. - Timeliness: Info is available in time for it to influence decision making. Older means less useful.

Question 59

Asset and liability recognition criteria

Answer 59

Relevant- information must be useful to users of the financial statements and make a difference in their decision making. Faithful Representation- Item must be honestly measured in monetary terms ie Historical cost, current value or an estimate. Transaction must be complete, free from bias and free from error. If it can be measured with a high degree of accuracy, it is faithful representation.

Question 60

Asset definition

Answer 60

A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has potential to produce economic benefit.

Question 61

Liability definition

Answer 61

A present obligation of the entity to transfer an economic resource as a result of past events.

Question 62

A-L

Answer 62

Equity

Question 63

Income definition

Answer 63

Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than equity contributions.

Question 64

Expense definition

Answer 64

Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than distributions to equity holders

Question 65

Nature of Corporations Act 2001

Answer 65

All companies are formed operated and wound up according to it. Reporting entities must comply with accounting standards under it Administered by ASIC and companies are required to prepare audited financial reports to be lodged with ASIC.

Question 66

Replaceable rules

Answer 66

basic rules for internally managing a company included in the Corp Act that can be replaced in Constitution

Question 67

written Constitution

Answer 67

Instead of just using the replaceable rules a company may use a constitution to regulate the internal operations of the company and change some RR.

Question 68

Prospectus

Answer 68

document issued by a public company inviting the public to purchase their shares. ASIC, ASX review before issue

Question 69

Director powers

Answer 69

- Managing business of the company - Recommend dividends - Inspecting the books during legal proceedings

Question 70

Duties of directors

Answer 70

- No use of information or position for personal gain - Act with care and diligence in best interest of shareholder - Inform other directors of any conflict of interest - No insolvent trading

Question 71

Rights of shareholders

Answer 71

- Receive dividends - Attend, discuss and vote at shareholder meetings - Get a copy of the annual financial reports

Question 72

Nature/Importance of IASB

Answer 72

Independent, private body that develops International Financial Reporting Standards. 14 members. - Approve interpretations of IFRS - Develop IFRS - Improve world financial reporting

Question 73

Nature/Importance of FRC

Answer 73

Made by federal government to provide strategic direction and oversee effectiveness of financial reporting and accounting standards in Australia. - Give federal treasurer reports on the standard setting process - Advisory body to AASB - Approve and monitor AASB plans - Appoint AASB members, except Chair who is appointed by treasurer

Question 74

Nature/Importance of AASB

Answer 74

Government body that considers the work of the IASB in issuing Australian standards for all reporting companies. Appointed by FRC except the Chair. - Develop a Conceptual Framework - Adopt and develop Accounting Standards under Corporations Act for Australia - Analysis of proposed accounting standards

Question 75

Nature/Importance of ASIC

Answer 75

Independent government body set up to administer ASIC Act 2001. - Check and approve company registration - Ensures financial markets are fair and transparent - Known as the Watchdog of Corporations Law as enforces Standards law and investigates illegal activities - Maintain, facilitate and improve Australia's financial system

Question 76

ASX

Answer 76

Publicly listed company that provides facilities for listing and ownership transfer of public companies. - Provide confidence in share trading - Monitor compliance with Listing Rules - Concerned with preparation and presentation of financial statements

Question 77

Lobby group

Answer 77

A group of people trying to influence an authoritative body to serve their own interests.

Question 78

External audit

Answer 78

an independent examination of the financial records prepared by reporting entities.

Question 79

how is an external auditor appointed

Answer 79

Appointed by the shareholders and reappointed at the AGM

Question 80

Function of external audit

Answer 80

* protecting external users of financial statements in making decisions Audit confirms reports provide a true and fair view of entities financial position and performance. * providing confidence to stakeholders in Australian Capital Markets as financial information has been seen by an objective professional

Question 81

Role of external auditors

Answer 81

- Check financial statements are a true reflection of company - Conformity with Acc Standards - Find any wrongdoings like insolvent trading

Question 82

Cash

Answer 82

Cash on hand (coins) and demand deposits (CAB)

Question 83

Cash equivalents

Answer 83

Short term, highly liquid investments that are readily convertible (within 3 months) to known cash amounts and have insignificant risk of value changes (deposits on short term money market, not shares).

Question 84

Benefits of CFS

Answer 84

- Assess ability of entity to generate CACE - Helps users make decisions - Enhances comparability

Question 85

CSD

Answer 85

the practice of measuring and disclosing activities relating to economic, social and environmental performance.

Question 86

Difficulties in producing social and environmental information

Answer 86

- No clear guidelines - Comparisons are difficult - Smaller businesses may not have the resources - Not audited externally so info could be false - Large amount of info needed

Question 87

Who uses CSD

Answer 87

CSD can be used by internal users (directors, managers) and external users (investors, lenders, suppliers) to judge business actions and make decisions

Question 88

What can CSD assist with?

Answer 88

- Non-financial success - Employee morale and motivation - Public reputation and trust

Question 89

Limitations in assessing performance from ratio analysis

Answer 89

Historical cost: Ignores depreciation Lack of comparability: Comparisons can only be made if reporting is consistent and policies may differ Lack of disclosure: Some disclosures aren’t mandatory under law. eg other expenses in income statement is vague Doesn’t account for external economic factors: A poor performance may have actually been good during that period. For example company performance during covid.